nike-business-model

Nike Business Model: Demand Generation As Core Asset

Nike makes money by primarily selling footwear via wholesale customers that distribute Nike brands across the globe. As of 2020, almost 63% of revenues came from footwear and 28.8% in apparel. The most successful Nike brand is the Jordan Brand, which in 2021 brought over $4.7 billion in revenues to the company. Nike is the master of demand creation and generation through its influencer campaigns, where athletes become an inspiration for everyday people. Therefore, product development combined with marketing and distribution makes Nike one of the most valuable brands in the world.

Nike Vision and Mission

nike-vision-statement-mission-statement
Nike vision is “to bring inspiration and innovation to every athlete in the world.” While its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.”

Nike’s main ability was that of creating an empire out of running shoes. That might sound as a trivial statement. Yet, before Nike, there was no major US brand who had done that. In addition, Nike created a whole business ecosystem around shoes. 

And it all starts by creating demand! 

As the pandenc hit the world, Nike highlighted in its 2021 Shareholders’ Letter: 

This was the year we brought to life our Consumer Direct Acceleration strategy. As part of CDA, we successfully realigned our organization and began investing in our highest-growth areas. Part of that investment is our new consumer construct of Men’s, Women’s and Kids’, which aligns us against the biggest opportunities we see ahead of us. We’re putting resources behind our end-to-end digital transformation across the value chain as we unlock more growth and efficiency for the business.

And it further highlighted: 

Our momentum is driven by the underlying strengths we enjoy – the competitive advantages that allow us to navigate whatever dynamics we face. Those strengths include our commitment to innovation, our digital advantage, and three brands in Nike, Jordan and Converse that create deep and meaningful connections with consumers across the globe.

What products does Nike sell?

Nike has nine key categories:

  • Running,
  • NIKE Basketball,
  • The Jordan Brand,
  • Football (Soccer),
  • Men’s Training,
  • Women’s Training,
  • Action Sports,
  • Sportswear (our sports-inspired lifestyle products)
  • and Golf.

Men’s Training includes baseball and American football product offerings. Nike also markets products designed for kids, as well as for other athletic and recreational uses such as cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities

Nike distribution and manufacturing

NIKE has six significant distribution centers located in Memphis, Tennessee, two of which are owned and four of which are leased.

Nike is supplied by approximately 127 footwear factories located in 15 countries. The largest single footwear factory accounted for about 8% of the total 2017 NIKE Brand footwear production.

All of Nike’s footwear is manufactured outside of the United States by independent contract manufacturers who often operate multiple factories.

In 2017 Vietnam, China, and Indonesia manufactured approximately 46%, 27%, and 21% of total NIKE Brand footwear, respectively.

Nike revenues breakdown

nike-revenues-breakdown

With over $42 billion in revenues in 2021, Nike kept growing through the pandemic. Its footwear segment made over $28 billion, follwed by Apperel, with almost $13 billion (representing respectively almost 63% and 28.8% of its total revenues). 

Additional revenues also come from brands that Nike managed independently, like Converse, which generated over $2 billion in 2021. 

Nike distribution is divided across wholesalers and sales to its direct stores: 

nike-sales-wholesale-vs-direct

For a bit of context, Nike generated over $25 billion in 2021,  by selling directly to Wholesalers, while it generated over $16 billions through NIKE Direct. 

Global Brand Divisions revenues are primarily attributable to NIKE Brand licensing businesses that are not part of a geographic operating segment.

NIKE Brand wholesale equivalent revenues consist of:

  • Sales to external wholesale customers.
  • and internal sales from our wholesale operations to our Direct to Consumer operations, which are charged at prices that are comparable to prices charged to external wholesale customers.

Others include all unisex products, equipment, and other products not allocated to Men’s, Women’s and Young Athletes’.

nike-sales-by-category

Men’s sales represent most of Nike’s total revenues.

nike-brands-salesWhile the Jordan brand is by far the most successful, with over $4.7 billion in revenues. 

For a bit of an overview, as showed on Nike’s financials: 

nike-revenue-breakdown

In 2021, North America represented 41% of Nike’s sales. 

In terms of distribution, 61% of shoes were sold through Wholesalers, while 39% through NIKE Direct. 

The most successful segment is still footwear, which was the fastest growing and it represeted 66% in 2021.

Nike spending on-demand creation

nike-demand-creation-expense-2021

One key ingredient of Nike’s success seems to be demand creation.

Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, television, digital and print advertising, brand events, and retail brand presentation.

Demand creation passed the $3 billion dollar mark in 2021, yet a decrease compared to 2020. Paradoxically, the demand creation expense decreased in 2021, as the pandemic didn’t allow for as many live events ad previous years. Yet, it might have been more effective anyhow. 

As the footwear Nike’s segment recorded a huge leap in sales. 

This is still the key, ingredient secret, for Nike, as Steve Jobs explained many years ago: 

The Company records demand creation expense for these amounts when the endorser achieves the specific goal. Certain contracts provide for variable payments based upon endorsers maintaining a level of performance in their sport over an extended period of time (e.g., maintaining a specified ranking in a sport for a year). When the Company determines payments are probable, the amounts are reported in Demand creation expense ratably over the contract period based on the Company’s best estimate of the endorser’s performance.

Yet the extent that actual payments to the endorser differ from the Company’s estimate due to changes in the endorser’s performance, increased or decreased demand creation expense may be recorded in a future period.

Other contracts provide for royalty payments to endorsers based upon a predetermined percent of sales of particular products.

Through cooperative advertising programs, the Company reimburses customers for certain costs of advertising the Company’s products.

Read Next: Nike Business Model, Nike Mission Statement and Vision Statement, History of Nike, Nike Organizational Structure, Nike PESTEL Analysis, Nike Competitors, Nike SWOT Analysis.

Related to Nike

Nike Mission Statement

nike-vision-statement-mission-statement
Nike vision is “to bring inspiration and innovation to every athlete in the world.” While its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.”

Nike Organizational Structure

nike-organizational-structure
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).

Nike SWOT Analysis

nike-swot-analysis

Nike Competitors

nike-competitors

Nike Pestel Analysis

Nike PESTEL analysis

Read: Mission Statement Examples.

Read also: Nike Mission Statement, Who Owns Nike.

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What kind of business model Nike use?

Nike is a footwear company, which primarily makes money selling footwear via wholesale customers that distribute the Nike brands across the globe. As of 2020, almost 63% of revenues came from footwear and 28.8% in apparel.

What is Nike's core business?

Nike’s core business is footwear. The most successful Nike brand is the Jordan Brand, which in 2021 brought over $4.7 billion in revenues to the company. Nike is the master of demand creation and generation through its influencer campaigns, where athletes become an inspiration for everyday people.

How does Nike make a profit?

Nike generated over $5.7 billion in revenues in 2021. Thanks to its most profitable segments (primary thanks to footwear and apparel).

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